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Michael K. Powell, a Republican, was nominated 31 July 1997 as a member of the FCC by President William J. Clinton and confirmed by the U.S. Senate on 28 October 1997. President George W. Bush appointed Powell chairman of the FCC on 22 January 2001. Gartner Fellow Kenneth McGee met recently with Chairman Powell in his Washington, DC, office to discuss issues and policies concerning broadband, telecommunications, media ownership and content issues and digital TV. Interview conducted 15 June 2004
Broadband Kenneth McGee: You've stated many times that broadband deployment is your central communications policy. Why is that so important? And what are the benefits that we'll derive from it? Michael K. Powell: There are a couple of reasons. First is the quasi public-utility nature of this different kind of service and a government model that can form around it, contrasted against the last 100 years of telephone regulation. Back then, we wanted telephone service to be ubiquitous and affordable, meaning we wanted everybody to have it. The scale required to do that, given the economics, tended toward monopoly; indeed, the government blessed and sanctioned a single provider, under the theory that phone service was a natural monopoly. Because the economics were so daunting in rural America, you had to create an enormous universal service subsidy fund to offset the costs of reaching the goal. And then you needed anticompetitive regulations to protect against the worst instincts of a monopolist.
The first thing I feel like we have the potential to do is to deliver to consumers more roots to their home. Already we have doubled our utility, with digital subscriber line (DSL) and cable modem technologies, which is better than the one-technology approach of twisted copper wire deployed by telephone companies a century ago. And there's unquestionably going to be a third technology — in some places fixed wireless, satellite or something else, such as broadband over the power line. The comparison to the old world is something to get excited about. We have the potential for more choice and innovation, and a different regulatory environment that doesn't place as much weight on economic regulations of terms and conditions. That's because you'll get something of a market going. McGee: Let's fast-forward ten years from now. How will we know that we economically benefited from broadband deployment during your reign? Powell: In simple terms, I think you're going to have lower prices, lower cost networks and 50 times the innovations. Look at Vonage's VoIP (Voice over Internet Protocol) service. Jeff Citron (Vonage co-founder, CEO and chairman) comes along (in 1999) and says, "I'm going to create a system that treats voice like data," which means it speaks the language of a computer, and "I'm going to use the Internet to be a transport vehicle." Look at what his consumer product will do. The programmability of the communication service is 50 times the traditional spoke-and-hubs central-office model of the phone system. So I can go to Germany and log in with my telephone number, and have it ring there. I can tell it not to ring at dinner and ring different ways for my wife and kids. Or I can tell it to convert the voice message into text and send it as a short message to my wireless phone. There are enormous innovations to come that are just not at all possible on the current fading infrastructure. McGee: But from an economic perspective, do you envision any tectonic plate shifts in the economy? Today, two-thirds of the economy is consumer-based. Do you envision some massive, grand shift that will change the way consumers behave?
I try to be a bit of a student of history. First it's all hyperbole and over exaggeration; we went through that in the 1990s with the dot-com bubble. We really got quite 'techno-ecstatic.' And I think that's an error, although natural. The same thing could have been said about railroads or the telegraph. We think the whole world's going to change, and forget that human beings are still human beings; we have the same five senses, we still interact the same way, we still love and hate the same way, but marketers lose track of that. But then it comes down to earth. It starts to deepen and mature, and I think we're going into that cycle. I do think it'll change behaviors. But it's not my generation that's going to change. My mother has a new computer and she uses it like a typewriter. And she's always going to. My child doesn't think of his computer as a typewriter; he doesn't even know what a typewriter is. My child sees that computing device as an information appliance, that has all kinds of interactive capability. So it is reordering the way a family lives, the way a business orients itself. McGee: Twenty years from today, how will people link to networks — say, 50 percent wireline, 50 percent wireless?
I've started thinking about networks as Legos. There are red bricks and blue bricks, and you can snap the bricks together. Our notion currently is the network, this network and that network. Networks are going to be separable and distinguishable from the way we think of them today. A great example is a North Carolina power line company bringing broadband to a neighborhood over high-voltage lines, using transformers every four houses. The company puts WiFi (Wireless Fidelity) antennae in the transformers. So, should we count that neighborhood as a wireline broadband network or a wireless one? I think wireline will be essentially ubiquitous to fixed locations by 2024. We'll be at around 90 percent access. But it doesn't mean that that will be the preference of people at a given moment or given time when they want information. I personally think that a lot of daily tasks will be wireless last mile or last inches to a wireline haul. I already live this way in my house. I love my DSL, but I love my WiFi more. And I probably get on the Internet 40 percent to 50 percent more because of the combination of those technologies. Telecommunications McGee: Recent events touch on competition in the interexchange and local exchange wireline markets. For example, the U.S. Court of Appeals ruled in March 2004 against unbundled network elements (the means by which interexchange carriers such as AT&T and MCI lease facilities from local phone companies to reach businesses and homes to provide competitive local phone service). Then the U.S. Solicitor General decided in early June to not appeal the ruling. You then issued a press release (14 June) announcing you will start work on adopting final rules for local competition. Why did you not want the administration to appeal that Court decision? Powell: Because win or lose, it's too late. It's what I thought a year ago, and now we've wasted a year getting back to the same question. McGee: If you decided new competition rules tomorrow...? Powell: Doesn't matter. I don't care how they come out; it's too late. This country is wasting too much time on this problem, when the real game is someplace else — broadband and not just plain old communications services. That's where everyone has to be, and where all are going. In two years, no one significant will be competing using unbundled network elements. So should the U.S. Supreme Court spend its time and resources on a case that won't even be ruled on until July 2005? Can the market afford another year of uncertainty? McGee: Why do we need an AT&T, MCI or Sprint anymore? Would you agree with the scenario that it's over for the interexchange carrier? Powell: I think you have to be in the communications business. And for every segment that you're limiting yourself to, you're decreasing your viability. So, no, I don't think there's a compelling case for a stand-alone long distance company over a long period of time. McGee: What would that period of time be? Powell: I think it's crashing fast. And part of it may be long over. We know what the cost of a long distant minute is — basically nothing. You can sell nothing for a mark-up for a while, but only until something starts eating away at it. Now I can go home and click on Yahoo, call my sister and talk over a microphone for free. The generational difference will give the long distance carriers a little time, because my mother isn't going to do tomorrow what I just described. But my son's absolutely going to. And that window's closing very rapidly. And I think the carriers understand that. They just haven't yet figured out how to get to where they think they need to go. McGee: Do you see the big carriers and the Bell companies recognizing the threat that's waiting for them? Powell: I think some are. They get mad at me, but I think they should be more scared. For all their size and success and revenue, their cards are not great.
McGee: Why don't they get it? Powell: When you've invested in the old, and you pay a dividend, and nobody likes to lend you risk capital or let you go into debt much — you have a real financial problem of how to take the risks and make the leaps and innovations that a little Vonage can. And if you don't figure out how to do it, all of a sudden those who can are eating your lunch. McGee: But do you really see the Davids being able to push around the Goliaths in the next phase? If it is indeed the Bells and the wireless providers, and alternatives, do you see an opportunity for small companies to really change the telecom playing field? Powell: Yes, I do see an opportunity, but I also think you should remember there are a whole lot of big giants who live in this particular jungle. If I was the CEO of a phone company, I'd be equally worried about Bill Gates, Steve Jobs, Carly Fiorina, and Intel, consumer electronics manufacturers or the cable companies. There'll be room for small companies and there will be niches. But it's all about access to an infinite amount of information, and whoever can get organized and present that information or data — whether news, information, entertainment or basic communications — is going to prosper. And anybody who thinks in narrow platform terms such as cable, satellite or wireless is going to lose; they're not going to get it fast enough. Media McGee: How does one reconcile the apparent desire of the Commission to promote competition, but expand the media ownership ruling? Are they not in conflict with one another? And how does the public benefit? Powell: We're required to review rules at a very high, ruthless standard. A lot of the rules, which are 30 or 35 years old, are difficult empirically to justify in the current environment. There's really only one rule that everybody's talking about — the national ownership cap, which most people think means we let you own 45 percent of the country. It's only audience reach, right? You don't explain to me why satellite can reach 100 percent or cable can reach 100 percent, but broadcast uniquely only reaches 45 percent. If you listen carefully to the debate about ownership, there's always a quiet struggle going on, just like there is in any antitrust case is: how do you define the market? We did the work, we did the research; this market is not concentrated in antitrust terms.
A message that seems to be finding traction is that the Commission doesn't seem to be consistently applying a competitive spirit to its undertakings, but now wants to regulate content. What's going on? Powell: Here's the truth: the ownership debate is about nothing but content. Don't be fooled. I mean, this is my greatest warning to the American public. It's easy to go after every ill in society by claiming it's the media's fault. It's the American pastime, right? Anything you don't like, it's the media's fault. What scared me in that debate is that it's not about the ownership rules at all. The vast majority of people don't even know what the rules say, to be perfectly candid. Name all six of them. Name what they actually do. Nobody can. They became a stalking horse for a debate about the role of media in our society. I can expect and understand consumer anger and anxiety about that. But the ownership rules are not the cause or the cure. It was really an invitation for people with particular viewpoints to push for a thumb on the scale, for content in a direction that people preferred. The danger with that? It's easy to say, "I'm comfortable with that when the government's doing it for something I like. But I get really scared when it's something I don't." And what is juxtaposed against the media ownership debate? Indeceny, which maybe is what you mean by content. Hollywood was happy to beat up on ownership liberalization because they want the government to intervene so we can promote more independent programming — which is content. But the same Hollywood says the government can't say that Howard Stern can't say the F word, because that's censorship and inappropriate. McGee: What's your response? Powell: First of all, there's a separate response for indeceny, since Congress has passed a statute and the Supreme Court upheld it. So I don't have any choice other than to believe that it is a constitutionally permissible restriction that the people, through their representatives, have imposed as a matter of law. But if you're outraged by that, you've got to be principled all the way through. You can't pick when it aligns with your interest and then scream about it when it doesn't. We wouldn't have had as much steam in the media ownership debate if Rupert Murdoch hadn't come into the world. Conservatives were griping for decades about liberal media and nobody paid attention. Now, all of a sudden, one news channel has gotten a whole new community of people freaked out. Digital TV As of May 2003, more than 1,000 stations in the United States were on the air with DTV signals, and every major TV market was served by at least one DTV station. The target date set by Congress for the completion of the transition to DTV is 31 December 2006. However, that date may be extended until 85 percent of homes in an area can watch DTV programming. At that point, broadcasting on analog channels will end and the spectrum will be put to other uses. Until the transition to DTV is completed, television stations are required to broadcast on both digital and analog channels. McGee: With regard to digital TV and the 85-percent threshold or the December 2006 transition date, what percentage of the population knows they're going to have to do something about their TVs, as analog gets turned off and digital becomes the coin of the realm? Powell: Few. I think people have a vague sense that the television system is changing. McGee: Do you think even that? That they know it's changing? Powell: I think a huge percentage of customers are aware of high-definition TV. McGee: But do they know they will be compelled to do something in the very near future? Powell: No, because the truth is it's not clear that they are compelled to do something in the very near future. We're trying to fix this with the plan we've been floating. Now, the law says the transition ends in 2006 or — and the "or" is the only part that matters — 85 percent of Americans go buy a digital TV. It took 35 years for the video cassette recorder to reach 85 percent. If that's the measure, we won't be transitioning for 40 years. The December 2006 date is false and was the day it was written. Our plan is to try and figure out a way to measure this, so we have a greater certainty when it does end. McGee: You've been very kind. Thank you so much. Powell: It's been an interesting discussion.
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